Business Context and Reporting Period
This Form 8-K reports the closing of the merger between Oaktree Capital Group, LLC ("Oaktree") and Brookfield Asset Management Inc. ("Brookfield") on September 30, 2019. The transaction involved a merger of a Brookfield subsidiary into Oaktree, followed by a subsequent merger of Oaktree's holding company into a new entity. As a result, Oaktree Class A Units were delisted from the New York Stock Exchange, while Series A and Series B preferred units remain listed. The filing details the entry into material definitive agreements, including an Exchange Agreement, a Tax Receivable Agreement, and a Restructuring Agreement effective October 1, 2019.
Key Financial Metrics and Transaction Terms
The filing does not provide historical revenue, profit, or cash flow figures for the reporting period, as it focuses on the structural completion of the merger. Key financial terms of the transaction include:
- Merger Consideration: Oaktree Class A Unit holders received a choice of $49.00 in cash or 1.0770 Brookfield Class A Shares per unit. Due to oversubscription for shares, the final consideration was pro-rated to approximately 0.6173 Brookfield Shares and $20.92 cash per unit.
- Exchange Agreement Valuation: Future exchanges of Oaktree Capital Group Holdings, L.P. ("OCGH") units will generally be valued using a 13.5x multiple on trailing three-year average fee-related earnings (less stock-based compensation) and a 6.75x multiple on net incentives. For 2020 and 2021, Converted Class A Units and Phantom Units are valued at a fixed $49.00 per unit.
- Tax Benefits: Brookfield agreed to pay $66 million in aggregate to OCGH limited partners on the first, second, and third anniversaries of the closing date in consideration for tax benefits.
- Pro Forma Data: Unaudited pro forma condensed consolidated financial statements are included as Exhibit 99.2 for the period ended June 30, 2019, but specific numerical values are not contained in the text of this filing.
Material Changes Versus Prior Period
The primary material change is the acquisition of Oaktree by Brookfield, resulting in a fundamental shift in ownership and governance:
- Ownership Structure: Oaktree is now a subsidiary of Brookfield. OCGH holds approximately 85% of the membership vote in Oaktree immediately following the closing.
- Delisting: Oaktree Class A Units (trading symbol OAK) were delisted from the NYSE effective September 30, 2019. Preferred units (OAK-A, OAK-B) remain listed.
- Board Composition: The Board of Directors was reconstituted. Messrs. Robert Denham, Larry Keele, and Wayne Pierson resigned. Messrs. J. Bruce Flatt and Justin B. Beber were appointed. The new Board consists of ten individuals, including representatives from OCGH (Howard Marks, Bruce Karsh), Brookfield, and joint directors.
- Consolidation Scope: Effective October 1, 2019, Oaktree's consolidated financial statements will no longer include economic interests in Oaktree Capital II, L.P., Oaktree Investment Holdings, L.P., Oaktree Capital Management, L.P., and Oaktree AIF Investments, L.P., as these were transferred to Brookfield subsidiaries.
Guidance, Outlook, and Governance
The filing outlines a new governance framework and future exchange rights rather than traditional financial guidance:
- Exchange Rights: OCGH limited partners may exchange vested units for cash, Brookfield shares, or notes during "Open Periods" starting January 1, 2022. Annual caps apply (e.g., 20% in 2022, increasing to 35% by 2025). Key executives (Marks, Karsh, et al.) may exchange up to 20% of their units annually starting in 2022, reaching 100% by 2026.
- Initial Period Governance: For an "Initial Period" (ending no earlier than the third business day after specific triggers regarding Marks and Karsh's ownership or involvement, or the seventh anniversary of closing), Brookfield's approval is required for "Material" actions (defined as impacting assets/liabilities by >$250 million or revenues/expenses by >$40 million).
- Future Governance: After the Initial Period, OCGH retains board appointment rights based on equity ownership thresholds (15% or 5%). Brookfield cannot remove Howard Marks or Bruce Karsh without cause as long as they collectively own at least 25% of the equity.
- Joint Committee: A joint-product development committee was established to identify benefits of the partnership between OCGH and Brookfield.
Investor Verification Checklist
- Verify the specific pro forma financial figures in Exhibit 99.2 to assess the post-merger financial position, as the text does not contain these numbers.
- Confirm the exact pro-rata calculation of the merger consideration received by Class A unit holders (0.6173 shares + $20.92 cash) versus the original election.
- Review the "Initial Period" triggers in the New Operating Agreement to understand the timeline for potential changes in governance control.
- Monitor the annual exchange caps and the $20 million excess limit for Converted Class A Units and Phantom Units to understand liquidity constraints for OCGH partners.
- Check the status of the Tax Receivable Agreement (TRA) to confirm that no Tax Benefit Payments will be made for exchanges occurring on or after March 13, 2019.